Founder answers
Valuation cap vs discount on a SAFE: what’s the difference?
Short answer
A valuation cap sets the maximum company valuation at which a SAFE converts (a lower cap means more shares for the holder). A discount gives a fixed percentage off the next round’s price. When a SAFE has both, it converts at whichever produces the lower price — the better deal for the holder.
The cap
The valuation cap is the maximum valuation used to price the SAFE’s conversion. The cap price ≈ cap ÷ pre-round fully-diluted shares. A lower cap converts the holder at a lower price, giving them more shares.
The discount
The discount is a percentage off the round price (e.g. 20% off). Discount price = round price × (1 − discount). It rewards the early cheque relative to new investors.
Common questions
If a SAFE has a cap and a discount, which applies?
Whichever yields the lower conversion price — the more shares — for the holder.
Is a cap or a discount better for founders?
A discount-only SAFE is usually gentler on founders than a low cap; a low cap can imply heavy dilution if the round prices well above it.
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